A Report from the 2009 NAPFA Conference

This monthly series of articles describes the many steps and occasional missteps we have taken in building our financial advisory business, Garnet Group LLC. Currently, Garnet has eight staff members, more than 90 clients, more than $200 million in client net worth under advisement, and offices in Bethesda, Md., and Boston. Veena Kutler, CFA, and Annette Simon, CFP, are the managing principals in the Garnet office in Bethesda.

We have devoted several columns over the past year to the market fallout and the resulting seminal changes charging through the financial services industry. Some of these changes have occurred so quickly that the news has been hard to fully take in and digest. Yes, Lehman Brothers, Bear Stearns, and Countrywide no longer exist. But who would have guessed that the words "Merrill Lynch" would disappear from our lexicon? And what will happen to that bull?

As we reflected on our fast-changing world, we were happy to attend the 2009 NAPFA National Conference, and we were confident that many of the sessions and hallway conversations would shed some light on what lies ahead for us. Below are Veena's observations about the conference.

The VenueThe conference was held in the first week of June in an area of the Washington, D.C., metropolitan area known as National Harbor, Maryland. Hailing from the D.C. area I was surprised to have never heard of National Harbor. Neither had the cab driver, interesting enough. Turns out that National Harbor is a $2 billion, 300-acre mixed-use convention/hotel/restaurant/marina project set on the banks of the Potomac, with a stunning view of the Woodrow Wilson Bridge. Its anchor hotel, the Gaylord, recently clocked in its first birthday. I was blown away by the urban planning creativity shown by positioning this development in a less-than flourishing part of the D.C. metro area. With direct access to the Washington Beltway (National Harbor has its own exit/entrance ramp), close proximity to the airport, and easy walking access to restaurants, it may well prove a worthy alternative to D.C. city-based conventions. Several conferences were held during the time I was there, and it was a pleasure to see a new venture apparently busy and flourishing during these depressive economic times.

Pre-ConferenceThis year NAPFA offered a full pre-conference day focusing on compliance. This proved of great interest to advisors, and it was a sellout. Some of the panels featured regulators from the SEC and FINRA. I had initially believed that it would be very helpful to catch their "pearls of wisdom," but with the change in administration and the rapidly evolving regulatory landscape, the officials were very cautious in their statements, and they did not provide much definitive guidance. Rules on custody are changing, and there is a potential that advisors who fee debit may soon be considered to have custody. This change appeared to be the number one question on advisors' minds. It certainly was on mine! Disappointingly, however, there was little discussion of the issue.

A lively session was a mock trial featuring well-known securities attorney Tom Giachetti, who played plaintiff's counsel. Industry icon and journalist Bob Veres acted the part of a well-intentioned, but sloppy advisor being sued by a client for what in hindsight proved an overly aggressive investment strategy. No allegation of fraud or other criminal behavior was made. The audience watched, torn between shock and amusement, as Bob, displaying his extensive knowledge of our business, portrayed traits and habits common to many advisors. In his role of relentless questioner, Tom showed us the many legal and regulatory pitfalls that even a well-meaning and honest advisor can fall into.

The ConferenceAs usual at a NAPFA conference, there were so many sessions and choices of breakout discussions that it was hard to make choices. Some of the best ones involved the relationship side of planning, although several of the technical sessions provided new and thought-provoking information.

An excellent session by James Maas on the "power of sleep" urged us all to sleep more and to forgo caffeine. Maas believes that sleep has the effect of antidepressants and other strong medications on certain people, and that sleep deprivation can lead directly to health problems. The encouragement led me to take a short nap and to awake recharged for the remaining sessions that day.

Visionary author Daniel Pink discussed future risks to our economy and way of life. In his view, two of the factors fueling the risk are Asia and automation. A combination of outsourcing and technology will drive down the price of all routine work. This includes taxes, book-keeping, financial planning input, and other routine financial-service tasks that many advisors now believe need to be done on their premises. The one task that can't be outsourced, in Pink's view, is relationship-building. He discussed the high value of empathy and the need for more of us to enhance our emotional intelligence going forward.

A session on the emotions of money by Gary Shunk focused on the importance of active listening in fostering relationships with our clients and with others around us. Active listening sounds easy, but is hard to achieve. It requires openly hearing the speaker without a rush to defense or change of subject on the listener's part. Shunk said that he believes conflict is actually good in a relationship, as it allows for active listening, negotiation, and ultimately the ability to move to a stronger place in the relationship. A long-term relationship without any hint of conflict, in his view, is already halfway to dead.

We have been structuring our practice so that client service and a strong understanding of client needs form the core of the service we provide. So it was interesting to hear that the speakers agreed that while many other functions, including asset management, can be outsourced, two-way client communication can never be.

A session on downside protection via options was well-attended and discussed in the halls. Although this is not a new idea--there are mutual funds, including the Gateway Fund, that have been doing this for years, but there appear to be new implementation strategies. There are exchange-traded funds available that involve options. The session presenters urged advisors to consider trading options themselves to reduce the cost charged by the funds or ETFs.

Behind the ScenesNo conference is complete without the networking and other discussions among advisors. The 2009 NAPFA National Conference was no exception. Some of the discussions focused on unhappy clients and ways to protect on the downside and to set expectations. An advisor who a year ago had mentioned that his biggest challenge was in getting his clients to freely spend the significant wealth they had accumulated acknowledged that the challenge now was related to clients unhappy with market performance. Several people told anecdotes about advisors who were looking for merger partners or other ways to cut costs and shore up their practices. A popular discussion topic was that of buy-and-hold asset management now being over given the market volatility of the last year.